School for Debtors

Business

Credit-card use, on top of student loans, can saddle grads with years of debt. But a San Diego nonprofit and a California financial-responsibility program are taking aim at the ever-growing pile of payments.

YOU ALWAYS REMEMBER graduation day. The pomp. The pageantry. And the debt——which can run $20,000 or more for today’s college grads.

Last year, for the first time since the Great Depression, the average savings rate for Americans went negative, meaning many of us are using savings, credit cards and home-equity loans just to maintain our standard of living. The trend toward debt also affects the futures of college students, whose main source of funding comes from grants and loans.

In San Diego, the high cost of living means students graduate into an even longer stretch of indebtedness. To enhance their worth as employees, they rack up even more debt during years of graduate school. The debt isn’t just confined to tuition and books. As credit cards have come to be regarded as a necessity of modern living, students are swiping plastic right along with the rest of us.

Students have become the fastest-rising client group for Debt Free America (debtfreeamerica.com), a Kearny Mesa–based nonprofit that helps consumers reduce debt by acting as an intermediary between debtors and their creditors.

“We’ve seen a 22 percent increase in student clients over the past year,” says Gary Symington, president of Debt Free America. “That’s our largest increasing client group, along with the elderly, which has grown by 16 percent.”

Though taking out loans for college is widely regarded as “good debt”——and responsible credit-card use is a prerequisite to participating in adult life——Symington says he’s seen how the road to the debtor’s life is paved with good intentions.

“When student loans don’t cover everything, students can live beyond their means, and it’s really easy to rack up debt,” he says. “Some get caught up in the balance-transfer game. They’ll run a card up to the limit, then they’ll get an offer of zero percent for six months [with a higher maximum], so they roll it over, and they just keep spending. Now they might have $5,000 on which they’re paying just the minimum, and they’ll put more money on the zero account, so it’s easy to get into trouble.”

Symington says students typically ask for help when they are as much as $12,000 in debt, only slightly less than his clients’ overall average of $15,000. The consequences of student debt range from dropping out of school to taking longer to finish——or even suicide.

“It used to be students graduated with about $5,000 in student loans,” he notes. “Now it’s about $20,000, and I’ve seen as high as $62,000.” Debt can extend the student’s college career past four years, which means he or she will have to borrow more. “It just puts them in a terrible hole,” Symington says. He points to the case of an Iowa student who hung herself and left a note saying ‘Sorry I racked up all these credit cards.’ ”

California universities have taken notice of the student-debt surge and formed the California Student Debt Resource and Awareness Project (studentdebthelp.org). CASDRAP’s development was spurred by the 2002 implementation of California Assembly Bill 521, the Student Financial Responsibility Act, which mandates that financial education programs be provided at California campuses as part of student orientation. The CASDRAP Web site contains advice for students on topics ranging from “financing your education” to a section titled “Help, I’m in trouble.”

“When CASDRAP started, all campuses were experiencing the same problems of students dropping out, taking second jobs, not being able to keep up academically or defaulting on their student loans,” says Dorothy Lerma, a San Diego–based administrator for CASDRAP. Without financial education, Lerma adds, students were using credit cards they were offered on campus to pay for tuition, or in some cases using student-loan funds to pay off credit-card balances.

Last year, the Project on Student Debt, a nonprofit supported by the Pew Charitable Trust, among others, released its analysis of student-debt levels for the class of 2005, based on data received by more than 1,400 four-year colleges and universities across the United States. The study produced some surprising conclusions. For example, states with a high cost of living, such as California, New York, Hawaii and Alaska, did not have the highest student-debt levels. None of those states was in the top 10 for student debt, and only New York placed in the top 20. The five states with the highest level of student debt for the class of 2005 were New Hampshire ($22,793), Iowa ($22,727), North Dakota ($22,682), Rhode Island ($20,798) and Pennsylvania ($20,775).

Factors that might lead a student to accumulate more debt in North Dakota than San Diego include less access to state aid and the lower income profile of students. At schools such as North Carolina A&T, with low in-state tuition and low-income students, students frequently had debt of more than $20,000; students at colleges with high tuition and student debt of $15,000 or less included Princeton and the California Institute of Technology. In fact, California turned out to be a student-debt bargain, relatively speaking, ranking 46th with an overall average graduation debt of $15,203. The state ranked 49th for four-year public institutions at $12,542, and 14th for private four-year schools at $21,596.

SAN DIEGO SCHOOLS were generally on par with the California averages. The average debt of San Diego State students for the class of 2005 was $14,500, up from $13,000 in 2001. At UCSD, debt was $14,689, up from $13,275 in 2001. At the private, nonprofit University of San Diego, average debt rose to $27,722, up from $23,800 in 2001.

Local financial-aid administrators say they are intent on keeping student debt to a minimum.

“The big problem is living expenses, which continue to increase,” says Chris Collins, associate director in the Office of Financial Aid and Scholarship at SDSU. “Financial aid has not increased at the same rate as expenses.”

Financial education is a key to keeping down student debt, says Judith Lewis Logue, director of financial aid services at USD.

“In 1995, I started doing money-management education for students entering the university to explain to them that when we do the eligibility for loans, we give them the figure that’s the most they can borrow,” says Logue. “But they shouldn’t borrow that until they figure out how much of that they really need.

“We have two guides for money management: one for when you are a student and one for when you graduate and you’re paying back the loans,” she says. Logue pays particular attention to indebtedness for USD students who are the first in their families to attend a university.

Another factor, say some administrators and students, is student lifestyle, which has gone from shabby-chic to upscale in less than a generation.

“There’s peer pressure to fit in, and more electronic gadgetry than there ever was,” Collins says. “You have to have the cell phone and the MP3 player and the latest gear, which particularly affects financial-aid students, because their budgets don’t allow for many extras.”

Asked if students are under social pressure to have the latest fashions and gadgetry while they’re in school, Ursula Tran, a junior at USD, says, “Oh, definitely. Everyone has to have designer jeans and Louis Vuitton bags.”

Tran says she’s resisting the temptation to join the debtor generation. “I don’t have any credit cards,” she says. “I have a debit card; I don’t want to get into more debt than I need to. It’s not a good thing at all.”

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